Saturday, June 30, 2007

Plaintiff is a member of Liberty Group, an association of billiard table retailers, and owns a trademark in LIBERTY BILLIARDS.Defendant TAB makes and sells billiard tables under its own name and private labels.In 2004, TAB orally agreed with Liberty Group to make LIBERTY BILLIARDS tables for sale only to members of the Liberty Group.TAB made several hundred such tables.In 2005, TAB’s president wrote to Kelly explaining that Liberty Group members weren’t buying enough tables to make the agreement profitable for TAB, and asked that members commit to buying 10-15 tables per month.Kelly never responded, and TAB then sold the remaining tables to non-Liberty Group retailers.

In its defense, TAB argued that it was selling genuine goods and therefore could not infringe.Unauthorized retailers have been held to infringe when they sell goods bearing a mark that don’t meet the trademark owner’s quality standards.But here, the court found, Kelly engaged in no post-manufacturing quality control.(Kelly encouraged retailers to follow up with customers to ensure satisfaction and address warranty issues, but the court found this too general to establish the existence of meaningful post-manufacture quality control procedures.)Thus, the tables were genuine goods.(Was Kelly’s testimony about quality control procedures used to select manufacturers like TAB enough to avoid a finding of abandonment?)

There was conflicting testimony over whether the tables still had the LIBERTY BILLIARDS mark when they arrived at retailers, but no conflicting testimony over this fact: the nameplates bearing the mark were removed before they were sold to the public.As a result, the court found that Kelly’s trademark infringement claim couldn’t succeed, because the only alleged confusion was of the public, not of the retailers.

Friday, June 29, 2007

Sometimes good lawyering can create new extensions or contractions of law; the latter happened here.The basic facts: due to fraud and theft by a McDonald’s subcontractor, at least $20 million in large-ticket prizes for McDonald’s contests were diverted and customers did not in fact have an equal chance at winning them, despite McDonald’s extensive advertising campaigns.McDonald’s knew there were problems with the games, but continued to advertise them.The resulting consumer class actions were settled in 2002 for $15 million in new prizes.A group of Burger King franchisees sued for false advertising.The court of appeals affirmed the district court’s ruling that the franchisees lacked prudential standing under the Lanham Act.

The court first held that prudential standing applies to the Lanham Act, despite language giving a cause of action to “any person” harmed by false advertising.“[C]onferring standing to the full extent implied by the plain language of § 43(a) would give standing to parties that have not had their competitive or commercial interests affected by the defendant’s conduct.” Thus, the court of appeals adopted a five-factor test for prudential standing, stating that it was doing the same thing as the Fifth and Third Circuits, despite the fact that those courts used the five-factor test to determine whether noncompetitors should also get standing and not to deprive direct competitors of standing.

Basically, the court characterized Phoenix’s argument that direct competition was sufficient to create standing as an argument that direct competition was necessary to create standing, and it’s true that many cases look beyond direct competition in appropriate circumstances.But that wasn’t Phoenix’s argument, and it would have been a silly one since Phoenix only needed to establish that direct competition was sufficient.There is tension between the circuits on whether direct competition is necessary, but until this case the circuit divisions never included sufficiency. As to sufficiency, the court reasoned that a multifactor test “is designed to determine whether the injury alleged is the type of injury that the Lanham Act was designed to redress--harm to the plaintiff’s ‘ability to compete’ in the marketplace and erosion of the plaintiff’s ‘good will and reputation’ that has been directly and proximately caused by the defendant's false advertising.”As we will see, all the work here is being done by “directly and proximately caused” – that is, questions of materiality and effect on consumers that should be addressed at a stage at which evidence can be considered, rather than by judges’ hunches about what fast-food consumers think and do.

The court identified one district court case denying standing to a direct competitor.KIS, S.A. v. Foto Fantasy, Inc., 240 F. Supp. 2d 608 (N.D. Tex. 2002).The court, however, misread KIS.The KIS court held that plaintiff photo booth manufacturer had no standing to assert a false endorsement claim under §43(a)(1)(A) based on defendant’s use of pictures of Tom Cruise to advertise its photo booths.That makes sense, given that the plaintiff had no relation to Tom Cruise.Before the court issued its opinion, the plaintiff had dismissed its false advertising claim under §43(a)(1)(B), which concerned separate alleged misrepresentations about patent exclusivity.The court did say, without further analysis, that the Tom Cruise claim was invalid under either (a)(1)(A) or (a)(1)(B), but the statement of facts makes clear that it was brought under (a)(1)(A) and argued that way.

Still, it’s not as if KIS is binding; I just want to highlight that what we have here is a new limit on the standing of direct competitors.So, on to the multifactor test.

(1) The nature of the plaintiff's alleged injury: Is the injury of a type that Congress sought to redress in providing a private remedy for violations of the Lanham Act?Yes, Phoenix alleged that it lost sales to McDonald’s because of the false advertising of the opportunity to win high-value prizes, and also incurred counter-promotion costs to lure back customers.

The court of appeals managed to reject some even worse arguments by McDonald’s on this factor – e.g., that its conduct wasn’t anti-competitive because it was the victim of fraud. But not only did Phoenix allege that McDonald’s knew about the problems and continued to advertise, the Lanham Act is strict liability; injury and fault are separate things.McDonald’s also argued that there was no competitive injury because its ads didn’t tout McDonald’s products or disparage Burger King’s.But the ads were designed to, and allegedly did, bring consumers to McDonald’s instead of Burger King.

So this factor weighed in favor of standing.

(2) The directness or indirectness of the asserted injury. The court of appeals recognized that the causal chain Phoenix alleged “is similar to that of the typical false advertising claim in which a plaintiff alleges that it lost sales and/or market share as a result of the defendant’s false or misleading representations.”But the court found the causal chain “more attenuated” than that alleged in cases where the plaintiff made false representations about its own products.

The court broke down the causal chain as follows: “(1) McDonald’s advertisements falsely represented that customers had a fair and equal chance to win one of the "rare" high-value prizes …; (2) as a direct result of the misrepresentation regarding the high-value prizes, McDonald’s lured customers who would have eaten at Burger King (as opposed to one of numerous other fast food competitors), causing Burger King to lose sales; and (3) but for this misrepresentation, these customers would have eaten at Burger King, even though the chances of winning one of the ‘rare’ high-value prizes would have been minute had there been no theft, even though only ‘certain’ high-value prizes were stolen, and even though these customers still had a fair and equal opportunity to win all of the other prizes.”

Note that (2) and (3) are the same thing, just restated – that the falsehood diverted customers from Burger King to McDonald’s.Moreover, (3) in particular makes a number of questionable assumptions.Consumers surely know that the chance of winning the big-ticket prizes is low (though they expect it’s fair), but as the lottery ads say, “you can’t win if you don’t play.”And lotteries themselves are good evidence that people are willing to incur costs for small chances at big payouts.Finally, advertising law generally presumes that overt claims central to ads are material to consumers, and the ads here promoted the big-ticket prizes.Nevertheless, the court concluded that “the causal chain linking McDonald’s alleged misrepresentations about one aspect of its promotional games to a decrease in Burger King’s sales is tenuous, to say the least.”

Thus, “[t]aking care not to conflate the prudential standing inquiry with the ‘materiality’ element,” the court concluded that the second factor counseled against prudential standing.Yeah.Just because you say you’re taking care doesn’t mean you are – likewise, apparently, just because you say you’re offering high-value prizes doesn’t mean you have to do so.

(3) The proximity or remoteness of the party to the alleged injurious conduct. Here the inquiry is whether there is an “identifiable class” of other people who are likely to vindicate the public interest by suing.The district court held that consumers who lost the chance to win big prizes were such a class.The court of appeals at least recognized that consumers, who lack Lanham Act standing, shouldn’t be considered in this factor, since otherwise it would always weigh against Lanham Act standing.This factor weighed in Phoenix’s favor.

(4) The speculativeness of the damages claim. The court found that damages were highly speculative, because only certain high-value prizes were stolen, and because the fast food market has many competitors.Nor could Phoenix rely on its request for disgorgement of profits, because any plaintiff can ask for that.This factor weighed against Phoenix.

(5) The risk of duplicative damages or complexity in apportioning damages. For similar reasons, the court found this factor weighed against Phoenix.Otherwise, every fast food competitor would have prudential standing, regardless of its lost sales or market share and “regardless of the impact on the competitor’s goodwill or reputation (as the advertisements made no mention of any competitor).”(I quote this because it repeats language the court used in factor (1), when it said that the lack of harm to Burger King’s reputation alone wasn’t sufficient to tilt that factor against Phoenix.Essentially, the court is edging the Lanham Act towards a product disparagement tort, where we’re more concerned about negative statements than positive ones.In moderation, this is sensible – if the McDonald’s ad mentions Burger King, we want Burger King to have standing – but it’s a bit odd given that the Lanham Act’s false advertising coverage began with positive statements, and had to be amended to overturn several circuits’ rules that disparaging statements weren’t covered.)

In more ordinary false advertising cases, courts often assess whether the ads at issue are likely to have harmed the plaintiff by looking at the plaintiff’s market share.If Starbucks is engaging in false advertising, a single-location coffee shop is unlikely to have suffered sufficient harm.But Burger King franchisees seem like they’re in a much better position to assert harm.And, in the flip side of factor (3), ask whether there is anyone else who’s in a better position than Burger King franchisees to vindicate the conceded commercial interests at stake.Even if consumers have been made whole, that settlement did nothing to redress the harm of the fraud on Burger King and other competitors – indeed, the class action settlement was designed to improve McDonald’s competitive position.

In total, the court concluded that, though it was a close question, Phoenix lacked prudential standing.It cautioned that its analysis might differ “if, for example, the facts were such that McDonald’s had falsely advertised the odds of winning all of its prizes (low-, mid-, and high-value), or if McDonald’s were only giving away a single prize and falsely represented the odds of winning, as these hypotheticals present factual scenarios materially different from the facts of this case.” Note that these hypotheticals have very little to do with the factors that supposedly counseled against standing, especially the two damages factors.The court is relying on its view of materiality.

My prediction: the only reason this decision won’t make a huge mess is that, as with Mead Johnson, future courts will limit it to its facts in application.At least, that’s my hope.For now, look for materiality/causation claims to become standing arguments as defendants cite this case to get rid of false advertising claims without that whole expensive factfinding process.

Here. My shorter take on the argument: I don't like your new modes of production; they don't give me the stuff I want. So stop.

It's an interesting type of argument, evaluative without being comparative (Wikipedia is unreliable, etc.) or historicized (summarized in the review as "historians and journalists traditionally strived to deliver the best available truth possible" but have now been overtaken by partisan blogging, and internet distribution will destroy the "sales or worldwide recognition enjoyed by earlier generations of musicians" -- yes, those many generations of musicians who enjoyed worldwide recognition, going back so far that the memory of man runneth not to the contrary).

Thursday, June 28, 2007

This month's ABA Journal has a good story by Edward F. Sherman on the uncertain future of the consumer class action. It documents the many reasons consumer class actions are in trouble, from CAFA to the Bush Administration's aggressive stance on preemption. ABA members can access a free 1-hour CLE program online relating to the story.

Wednesday, June 27, 2007

Plaintiff Third Party sought a declaratory judgment that it was not infringing copyrights, patents, or other intellectual property rights in SignatureLink Web Signature Software that captures signatures and records proofs of purchases for online transactions. Defendant SignatureLink counterclaimed that Third Party’s AssureSign Electronic Signature Technology infringed the copyright in SignatureLink’s source code.Third Party accused SignatureLink of false marking and false advertising; SignatureLink counterclaimed for misleading advertising and unfair competition.

Among other things, SignatureLink allegedly accused Third Party of violating its patent and copyrights when SignatureLink possessed neither a patent nor a registered copyright.SignatureLink responded that there was a copyright registered by an actual third party, which was transferred to SignatureLink in July 2005 though not recorded until November 2006.And SignatureLink argued that the difference between “patented” and “patent pending” couldn’t support a misleading advertising case, since no consumer would rely on it.

The court referenced other cases in which misuse of “patented” or “patent pending” supported a false advertising allegation.Moreover, in Florida, a competitor can maintain a case for misleading advertising with the element of competition substituting for the otherwise necessary element of reliance.Thus, reliance doesn’t necessarily need to be alleged or proven.

This analysis doesn’t seem quite right – competition should substitute for the plaintiff’s reliance, not the element that the misrepresentation should be the type of thing on which consumers are likely to rely.But “patented” could lead to reliance, if consumers are induced to believe that (1) the product is superior to others because it’s patented or (2) similar products are unavailable elsewhere because of the patent protection.Indeed, Third Party’s false advertising allegation was not just that SignatureLink falsely advertised that it had patent protection, but that it also advertised that “there are no other companies that have online signatures.”Thus, Third Party's false advertising cause of action survived, as did its cause of action for false marking in violation of 35 U.S.C. § 292, which authorizes qui tam actions against people who intentionally falsely mark or advertise articles as patented.In order to avoid preemption of state unfair competition law by the patent statute, however, the court noted that it would require a finding of bad faith, which was properly alleged.

SignatureLink’s false advertising cause of action challenged Third Party’s ad claims to be “the only service-based, electronic, hand-written signature on the market” and that “never before has obtaining a signature on a document been so easy, so secure, so fast.” This avoided dismissal for the same reason Third Party’s counts did.

Finally, the parties argued over whether F.R.C.P. 9’s heightened pleading standard applied to Third Party’s allegations, because they have elements of deceit or bad faith.The court refused to apply Rule 9 to false marking claims.Also, and in some tension with its preemption rationale, it relied on case law holding that Florida state false advertising/unfair competition/unfair trade practices law was supposed to cover more than fraud, so Rule 9 doesn’t apply if the state-law claim isn’t predicated on fraud allegations.The court didn’t discuss pleading standards for the Lanham Act claims.

Tuesday, June 26, 2007

The plaintiffs’ putative nationwide class action alleges that Pfizer engaged in false and misleading advertising of its cholesterol-lowering drug, Lipitor, which is the most widely prescribed statin. This ruling addressed Pfizer’s motion to dismiss the claims of certain individuals and of the Pennsylvania Employees Benefit Trust Fund.

It’s undisputed that Lipitor lowers cholesterol.What’s disputed is whether this has any effect on heart attacks.Lipitor was approved by the FDA in 1996 for patients with primary hypercholesterolemia, an approval expanded to all patients in 1998.Before 2004, the FDA had included that the relationship between Lipitor’s cholesterol-lowering effect and disease rates was unknown.In 2004, Lipitor was first approved for the prevention of cardiovascular disease in certain patients – specifically, the FDA approved labeling that Lipitor reduced the risk of heart attacks in adults without clinically evident coronary heart disease, but with multiple risk factors (e.g., being over 55, smoking, hypertension, low “good” cholesterol, or a family history of early heart disease).Lipitor’s approval did not extend to include claims of reduction in cardiovascular morbidity and mortality.

Pfizer’s ads frequently show pictures of women or the elderly with their cholesterol numbers prominently displayed, warning that “high cholesterol is a risk factor for heart disease.” (Most of the ads explicitly say that Lipitor “has not been shown to prevent heart disease or heart attacks.”)Pfizer also promotes Lipitor to doctors for the prevention of heart disease in women and elderly patients.The plaintiffs argued, however, that there is no scientific evidence that Lipitor reduces the risk of heart disease in women or elderly patients who do not already have heart disease or diabetes. Nonetheless, 34% of survey respondents indicated that they believe that Lipitor has been shown to prevent heart attacks. (So much for that explicit disclaimer.)

The individual plaintiffs are 65-year-old men who haven’t been diagnosed with heart disease or diabetes.The Pennsylvania Employees Benefit Trust Fund provides prescription drug coverage to over 270,000 participants and beneficiaries.It alleged that “if not for Pfizer’s deceptive advertising campaign, it would have excluded Liptor from approved formulary schedules, set a lower value in the formulary, or set a higher co-pay obligation.” Because the Fund has some control over the prices it pays for drugs, unlike individuals, the court had earlier ruled that it had a greater ability than individuals to maintain claims for recovery of monies paid.

The court ruled that plaintiffs’ claims based on ads that ran before July 2004 (when Lipitor was approved to prevent cardiovascular disease) were not preempted by federal law or by relevant state “safe harbor” statutes.The plaintiffs argued that the pre-July 2004 ads were inconsistent with Lipitor’s FDA-approved label. Under Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996), state law requirements that parallel FDA rules are not preempted. Likewise, Florida and Massachusetts have safe harbor statutes that bar lawsuits challenging conduct specifically permitted by a federal or state regulatory scheme, but plaintiffs allege that Lipitor’s marketing violated federal law.

The post-July 2004 claims, by contrast, were prempted by federal law, were barred by the safe harbor statutes, and were in addition not misleading as a matter of law, because they merely restated the approved labeling.The court acknowledged that the FDA only approved risk-reduction claims as to patients with multiple risk factors for coronary heart disease, and the ad claims weren’t limited to that group, but the ads “derive[d] from, and largely comport[ed] with,” the approved label.

The court expressed “serious doubts” about the chance of success on the remaining claims because most of the ads specifically stated that Lipitor hadn’t been shown to prevent heart disease or heart attacks, and those ads weren’t misleading as a matter of law because they substantially comported with the FDA approved label.Comment: they might not have been false as a matter of law, but can evidence that the ads misled consumers be enough to establish a violation of the law?Maybe there are things you can say on a label that you can’t say in the same way in an ad.(This is especially relevant if Lipitor is only helpful to certain groups. Many years ago, the FTC went after Geritol for advertising that it was useful to combat fatigue, but that was only true if the fatigue was due to anemia and not some other cause, so a lot of tired people bought Geritol in vain.)

The court also dismissed the plaintiffs’ claims for unjust enrichment because they had adequate remedies at law, and also because they received the benefit of their bargain.Lipitor lowered cholesterol.They claim they wouldn’t have bought the drug without the misleading representations, but that was “too little too late” – they received the benefit even if they now do not want the bargain.Given that Lipitor is now approved for reducing heart attacks in elderly men and women with multiple risk factors, and that the plaintiffs had not shown that they lacked multiple risk factors, they even got the entire benefit of their bargain – lower cholesterol and reduced risk of heart disease.

The court refused to dismiss the Fund’s claims for negligent misrepresentation and consumer fraud under Pennsylvania law.The negligent misrepresentation claim concerned Pfizer’s failure to qualify its statements and disclose that there was no evidence of ultimate health benefit from Lipitor.Usually there is no duty to speak absent a fiduciary relationship, but at least one Pennsylvania case holds that huge information disparities between a knowledgeable seller and a lay buyer can require disclosure.The court was skeptical that this rule applied absent a health or safety risk, but it refused to dismiss the complaint at this stage.(I’m not sure why the court didn’t discuss the other instance in which omissions are usually actionable, which is when they are directly relevant to explicit claims – such as when an advertiser fails to disclose the meaning it gives to a term in an ad that consumers are likely to interpret another way.)

Monday, June 25, 2007

The NYT reports that a band's unauthorized video using clips from the first three Die Hard movies was first pulled from YouTube by Fox's request, then returned with additional studio-provided content from the upcoming sequel when the studio realized it was a powerful promotional device.

A couple of observations: First, about tone -- the story begins, "The story seems familiar to online video users: fans create a parody video using pirated studio content and post it on YouTube, and the studio’s lawyers quickly have it removed for violating copyright law."

"Pirated"? Let's be clear: this is a 3-minute video, not 6 hours of Die Hard. There's no indication that the clips were taken from unauthorized copies, and most fan video makers I know work from authorized copies when they can. So now making parodies based on an original is piracy? And I guess all those yearbook quotes from copyrighted works are looted booty.

Second, the tribute to the movies had a reasonable fair use defense. With the makers now not just licensed, but paid, for the video, however, Fox can now claim there's more evidence that unauthorized videos interfere with its legitimate market. Since Fox is the one paying, it's hard to say the unauthorized user gets for free something for which she'd ordinarily pay -- but these are early times in remix video licensing. I'd also expect aggressive lawyers to suggest that, like cybersquatters, remix video makers are hoping for a similar payout.

In its review of i google myself, a current play, the New York Times tells the truth about trademarks as well as people: "When no one’s looking, in the privacy of our own home, vanity or curiosity (or a mix of the two) compels us to google ourselves." Creeping genericide? Not a chance. In today's heavily branded environment, consumers can perfectly well distinguish between nontrademark and trademark uses; Google is a brand, but google is a verb.

I think there's a much better justification for google as a verb than kleenex as a noun, though neither are evidence that the marks have lost trademark significance. The verb "google" fills a linguistic hole, substituting for more awkward locutions like "enter our own names as search terms." Traditionally, filling a linguistic hole has been an excellent way for a term to become generic, but -- as long as there is a generic term for the thing, which there invariably is for our modern successes such as TiVo, iPod, Google, etc. -- I doubt that's true any longer.

Thursday, June 21, 2007

Amusing, but also disturbing: I was Googling for Commercial Alert's work on product placement, and Google offered me four different firms eager to help me get my product on film sets, in celebrity hands, etc. "Guerilla marketing" is such a troubling concept in so many ways, part of the overall Conquest of Cool. Is there any kind of rebellion that can't be literally sold to us?

Public Knowledge on NBC's reasoning that an internet without packet-sniffing for infringers hurts America's farmers. The extended causal chain reminds me of high school debate, without the terminal nuclear war.

Tuesday, June 19, 2007

Plaintiff NetQuote operates a web site that allows individuals to submit information about themselves and their insurance needs.NetQuote sells that information to insurance brokers and agents, who then contact the individuals with an insurance quote.

NetQuote sued MostChoice, a competitor, and Brandon Byrd, its employee. NetQuote alleged that MostChoice employed Byrd to pretend to be individuals interested in insurance quotes.He thus submitted hundreds of false inquiries to NetQuote’s web site, knowing that NetQuote’s clients would receive bad information that could not lead to a sale. NetQuote’s clients complained about the bad information, and some ended their relationships with NetQuote. To add false advertising to injury, MostChoice advertised itself as having superior accuracy and reliability in insurance referrals compared to NetQuote.NetQuote thus alleged fraud, tortious interference with business relations, common law unfair competition, false advertising under the Lanham Act, and deceptive trade practices under state law.

Defendants argued that NetQuote’s computer system “forwards information submitted on its web site directly to insurance brokers without any person at NetQuote actually reviewing or acting on the information.” Thus, defendants argued that NetQuote couldn’t have relied on any false information.

Assuming that NetQuote needed to plead reliance under Colorado law, the court found its complaint sufficient.It alleged that it had developed filtering and monitoring systems to improve the accuracy of its information.Those systems reviewed every submission, and could only be evaded by the intentional effort of a person with industry experience.The court thus refused to hold that “a corporate party can rely on representations only if human eyes first review the information.”In fact, a corporation may be entitled to rely on information provided by computer systems; at least one California court has found that a computer system can act as an agent and rely on information it receives.Thrifty-Tel, Inc. v. Bezenek, 54 Cal.Rptr.2d 468, 474 (Cal.Ct.App.1996).Thus, NetQuote’s fraud claim survived.

Monday, June 18, 2007

Good Copy, Bad Copy is a documentary about copyright law and creativity, decidedly on the free culture side, with a few cameos from MPAA/RIAA types, including someone from Bridgeport Music (oddly, the documentary really pulls the punch with that one, asking her how George Clinton feels about Bridgeport's stewardship of his music without mentioning the circumstances under which Bridgeport acquired its rights). Worth watching: segments on Russian pirates and Nigerian movie producers, both of which could have used a lot more development. A Nigerian vendor, for example, remarks that it's okay to pirate foreign films but not Nigerian ones, because the Nigerian producers police the marketplace, but we never hear how that works -- simple intimidation, or what? -- given that we've been told that there is no real Nigerian copyright law. It's a disjointed but watchable collection of interviews.

Alan Schwartz, an associate professor at the University of Illinois at Chicago and roleplaying gamer, interviewed me about the legal issues surrounding games based on others' copyrighted works for his podcast (mp3) TinyTalk, which covers issues of interest to text-based gamers.

Defendants make beverages under a variety of brand names.In late 2000, they acquired the Blue Sky natural soda business from the Blue Sky Natural Beverage Co., a Santa Fe, NM-based company in business since 1980.From 2000 until at least May 2006, the Blue Sky containers contained prominent indications of Santa Fe origin, including “SANTA FE, NM” and similar statements.The packaging of Blue Sky beverages also has a “particularly Southwestern look and feel” including “stylized Southwestern Indian tribal bands” across the top and bottom and “pictures of what appear to be the Sangre de Cristo mountains that border Santa Fe, New Mexico on the eastern side of the city.” (Plaintiff’s complaint.)Until May 2006, Defendants’ website stated “Santa Fe, New Mexico, U.S.A.” and the phone number used a Santa Fe area code.

Blue Sky beverages are not manufactured or bottled anywhere in New Mexico. Moreover, one month after the acquisition, the Blue Sky Natural Beverage company was dissolved in New Mexico and re-registered with the California Corporation Commission as a Delaware corporation with its principal place of business in Corona, California.

The named plaintiff is a native of New Mexico and has bought Blue Sky beverages since he was a child. He continued purchasing Blue Sky beverages after he moved to California in 1999 because he believed that they were made in New Mexico, or at least made by a New Mexico company, and he desired to support a New Mexico company and associate himself with a New Mexico product.He alleged that he would not have bought the beverages if he had known the truth about their manufacture and/or the company that owned the brand.He sued for statutory false advertising, unfair trade practices, violation of the Consumers Legal Remedies Act, and common-law fraud.The defendants removed to federal court under CAFA.

The court dismissed plaintiffs’ claims for failure to allege injury in fact. Plaintiffs argued that their damages equal the amount paid for the Blue Sky beverages because they would not have purchased the drinks had they known the truth.The court found, however, that defendants’ alleged promise of Santa Fe origin had no value – plaintiffs had not alleged damages “resulting from” the misrepresentation of location of bottling and/or corporate headquarters. In other cases finding injury in fact, the market value of what the plaintiffs received differed from the market value of what they thought they were getting.There was no premium for Blue Sky beverages because of their purported Santa Fe origin.

Comment: This analysis is deeply troubling to me.It suggests that in any market with standardized prices – most consumer goods, especially the cheap ones where redressing any fraud is going to require a class action – there can be no consumer fraud claim.For example, Diet Coke Plus, which just showed up at my supermarket, advertises that it has added vitamins and minerals, but it sells for the standard price of a bottle of soda.Under the court’s reasoning, the Coca-Cola Co. could simply lie about the contents, get consumers’ business as a result, and escape liability.And in a competitive market, it would be hard for any one competitor to show Lanham Act standing either.But consumers would still be harmed by being deceived into a choice they wouldn’t otherwise make.

What is going on here is pretty clearly the court’s disbelief that the geographic origin claim is material, or material enough to support a class action.But if that’s the case, that’s how the analysis should proceed.(We could start with the complaint’s equivocation on whether the company location or the bottling plant location is key; the very need to use “and/or” repeatedly indicates doubt about what the claim is.)But the court should deal with the reality that geographic origin makes a difference, at least to some consumers for some products.Maybe there’s no way this plaintiff can show that there are enough people like him to support a class action – but this was the wrong way, and procedural posture, to decide that question.(And on his side, one could ask why the bottles so clearly touted their supposed geographic origin/connection – usually claims like that are made because the advertiser believes them to be material.Maybe it’s just branding, like CALIFORNIA INNOVATIONS bags, but that should be examined rather than declared irrelevant.)

Thursday, June 14, 2007

The internet never ceases surprising me. The most hated blogger on the internet, it seems, has fled the US for Australia to avoid the consequences of his mortgage fraud. This would not be of much interest to me, except that his well-organized cabal of haters includes someone who's reposting all his blog entries on a different blog, so that fellow haters can read his entries without giving him any ad revenue. He has threatened a copyright infringement suit. (There's other copying described at that first link, but the blog reposts are what interest me.)

I would think that deliberately attempting to deprive someone of ad revenue crosses the line into bad faith, even if in general copying posts to criticize them is kosher given the norms of the blogosphere. Of course if each post is copied with added commentary, and if each post is as short as the one I linked to, then matters are more difficult. I can see the argument for copying rather than just linking, in case the original post is later edited. Moreover, the news story ascribes the revenue-diverting motive to the copiers, but would they all admit it? Even if they did, the question is whether it's the criticism or the copying that causes the economic harm; criticism is allowed to try to throttle the original economically. If the haters ("haterz") prefer to read the posts with mocking commentary attached, then maybe there's no actionable market substitution.

Wednesday, June 13, 2007

Two Yale Law School students have sued posters on a law school discussion board for defamation, related torts, misappropriation of personality, and copyright infringement, for reposting candid photos that were part of one student's online collection at her own page.

What happened (Wash. Post article) to these students was inexcusable -- they were harassed, threatened and defamed, and I have subzero sympathy for the defendants, who may have thought that using pseudonyms exempted them from the ordinary requirements of humanity. But -- I did write a whole article about this type of copyright issue. And I think copyright is the wrong tool, though privacy torts might be the right ones.

As Feministe summarizes, the misogynist posters on the site, among other things, suggest that a woman who has the temerity to post ordinary pictures of herself on a general webpage has to expect that others will post crude fantasies and threats about her. Their "asking for it" argument is nothing new, but it's structurally similar to the argument the court accepted in Nunez v. Carribean International News Corp., 235 F.3d 18 (1st Cir. 2000): a debate over the existence and presence of the picture itself is at least a modestly transformative context for the copying. And here the individual posters' use of it was noncommercial.

The middle two fair use factors (creative but published; entire picture copied) favor the plaintiff a little but rarely matter. The effect on the market depends on whether we analyze the market for photos as a whole or segment it; courts have inclined towards the latter, at least in transformative use cases. There's not much market for uses of candid photos in discussion threads. The fact that they're candid wouldn't necessarily excuse the New York Times from paying if it used the shot to illustrate a story, but it makes copyright's incentives less important. So: fair use and criticism of women's bodies, once again joined.

Separately, there are barriers to the misappropriation claim, specifically the fact that the posters didn't benefit commercially from their acts. The IP claims have the great virtue, from the plaintiffs' perspective, of being available against the website because they're exempt from section 230 of the CDA, but here the plaintiffs didn't sue the site, so I'm not sure losing the IP claims would be all that harmful to the outcome. (Another relevant consideration: the copyright claim gets them into federal court.)

Tuesday, June 12, 2007

TerraCycle, the fertilizer company being sued by Scotts, again shows its strength in spin in this BBC News clip, which is entirely told from TerraCycle's perspective, with only a vague mention of the false advertising claims against it. The reporter discusses TerraCycle's PR offensive, but doesn't mention that she's a part of it, with reporting focusing on the employees from distressed Newark who supposedly stand to lose their jobs if Scotts wins. I should also mention that I got this link from an anonymous commenter, who may well be part of the TerraCycle team.

Plaintiff Carter is defendant ALK’s former vice president and general manager.He alleged that ALK, which does business as ACME Security, took his idea for improving the security of safe-deposit boxes, applied for a patent that falsely listed ALK’s owner as an inventor, and coerced him to assign his rights therein.The court determined that none of Carter’s multiple claims stated a federal claim, though it agreed that his allegations were troubling.

Carter’s false designation of origin claims, based on ALK’s sales pitch to Wachovia, were precluded by Dastar.This is familiar territory: if ALK ultimately sells the invention to Wachovia, it will be the physical source of the relevant goods.

False advertising was not successful either, in part because Carter alleged that it occurred through the false patent application.The court had no problem deciding that this wasn’t “commercial advertising or promotion.”Moreover, this was the unusual case where the misrepresentations at issue didn’t involve any product or service, only the pending patent application.There is precedent holding that a patent isn’t a “good or service” under the Lanham Act.digiGAN, Inc. v. iValidate, Inc., 71 U.S.P.Q.2d 1455, 1459-60 (S.D.N.Y. 2004).(Note: a patent might be part of a defendant’s “commercial activities,” however, as that term has been broadly defined in false advertising cases.The court didn’t address the line of cases holding that misrepresentation that goods are patented or that a patent is pending can be false advertising in appropriate circumstances.)

Finally, invoking a sort of implied exhaustion requirement, the court pointed out that a falsity determination would require the court to determine who the real inventor/s was/were, and this is for the PTO in the first instance.The statutory scheme governing patents is pretty clear that courts should only determine inventorship disputes once (if) a patent issues.This isn’t akin to a garden-variety claim that the patent statute preempts the Lanham Act. There will be no patent unless the PTO approves it; it’s more like a false advertising claim based on statements about a drug the FDA has yet to approve.

Monday, June 11, 2007

This post on Blanch v. Koons, which was sympathetic to Blanch's claim, ends by advising photographers to advertise their willingness to license their photos for any use at all, including incorporation in artistic works, in order to defeat transformativeness claims and show market harm. Thanks to Matthew Sag for the pointer.

Slate has a story on the shoddy history of the engagement ring, citing Margaret Brinig's argument that the ring compensated for the desuetude of the cause of action for breach of promise to marry. I think my account complicates Brinig's argument somewhat, but the Slate piece's real flaw is that it gets the law wrong. In most states that have decided the issue in the last 50 years, with the notable exception of Montana, an engagement ring is a conditional gift with the condition being marriage, not willingness to marry. So it doesn't matter who calls off the engagement; if it's off, the man can sue for return of the ring. Slate gives as the legal rule what is actually (a variant of) the etiquette rule: the caller-off doesn't get the ring.

(Side notes: (1) I call the Montana case notable because it relies on the analysis of your humble correspondent, and the dissent criticizes the same, although to my great dismay I'm cited as Rebecca Rushnet, the Scooby-Doo version of my name. (2) Yes, I wear one, though I should have made my husband do so as well. (3) No, I didn't write the note because of any personal experience, though that would make a better story!)

Sunday, June 10, 2007

I've written before about the empirical weakness of the argument that copyright owners won't authorize parodies, but just realized I'd been overlooking a significant example -- Janis Ian. Ian released an excellent album, Revenge, and then recorded Janis Ian Shares Your Pain, an album of parodies/satires of the same songs. Both are available on iTunes. My personal favorite is "Stolen Tires," based on "Stolen Fire," but "Take Me Walking in Bahrain," based on "Take Me Walking in the Rain," is a wonderful take on the star-crossed lovers genre. Is it ironic that Ian, a great proponent of making some songs available for free on the internet to drive ticket and CD sales, is also trying to capture the market for parodies of herself?

The subfield of sweetener litigation marches on, with Merisant and McNeil sniping about whether one or both breached the recent settlement agreement that came after a federal jury reached a verdict on Merisant's false advertising claims. Merisant's "Now Taste the Truth" ad that ran in USA Today (with invalid coupons, sorry); Merisant's "Equal Cares" website.

Is it misleading or defamatory to imply that McNeil was guilty of false advertising in the US by juxtaposing a judicial finding against McNeil in France with a statement that the parties settled their US lawsuit? My instinct is that it isn't, because the implication is only of an opinion and the underlying facts are disclosed. It's perfectly possible that Merisant's ad violated the settlement agreement, though, depending on what the agreement says.

Monday, June 04, 2007

A group of fanfic fans is forming to set up a nonprofit organization for collective fannish projects, including building a central fanfic archive. We are setting up shop in the fanarchive community on livejournal, located here.

A couple of big updates have been posted today (Monday June 4), including the basic outline of our organization structure and our call for volunteers. If this sounds like something you would be interested in, please stop by, give us your thoughts, and sign up for announcements!

(If you use an RSS newsreader, you can use that same URL to subscribe to the news feed.)

You also do not need an LJ account to make comments on posts -- please just remember to put your name/pseud somewhere in your comment, so everyone knows who is talking, and include your email address so others can reply to you directly if you want.

If you would like to catch up on the last week or two of discussion, a helpful summary post is up here.

Sunday, June 03, 2007

Via Eric Goldman, a play producer labels favorable audience reviews posted on the NYT website as coming from "The New York Times Online" and uses them in his ads. The NYT protests, and the producer says that as long as the NYT is giving publicity to amateur reviewers whose only qualifications are a ticket purchase and a computer, he's going to keep labeling the reviews as coming from the NYT.

I'm with the NYT on this. As its lawyer sensibly points out, there's a huge difference between "an opinion that appears in the NYT" and "an opinion of the NYT," and the producer's advertising deceptively implies the latter, given the conventions of play advertising. By the producer's bad logic, he could quote letters to the editor as coming from the NYT, or even favorable reviews from an ad he ran in the NYT's pages.

What is particularly -- gumptious? -- about the producer's stance is that he apparently has contempt for both amateur and professional reviewers; he likes the NYT no more than its readers. Though of course he's happy enough to appropriate the favorable reviews of unqualified, haphazard amateurs.

Saturday, June 02, 2007

Plaintiff/counterdefendant Edward Allen filed this copyright lawsuit in February 2006. Defendants/counterclaimants Ghoulish Gallery and individuals associated with it, including Tim Turner, filed counterclaims in April 2006.

According to defendants, Turner is a Hollywood effects artist in the “haunt industry.”“In the early 1990s he created a changing portrait through lenticular lens array technology, which allows a viewer to perceive, from the same portrait, both an antique photographic portrait and a gruesome, scary version of the same portrait, by adjusting the viewer's line of sight.”For health reasons, he stopped work on the changing portraits from 1996 to 2002.

Allen and Turner allegedly met in 1992 at a haunted house where Turner was displaying his work.In 2003, Allen launched a website selling changing portraits using technology similar to Turner’s.Turner alleges that Allen has falsely advertised that his changing portraits are the “original works” and that his portraits are “award-winning.”Further, he alleges that Allen copied his website and created several portraits that are confusingly similar to Turner portraits.Moreover, he claims that Allen contacted at least two of his customers to tell them Turner was a thief and a liar; Allen claims these were his own former customers.Not content to stop there, Turner alleges, Allen contacted many haunt industry professionals to disparage him.

After the initial filings, parties spent the next several months in negotiations that failed.In March 2007, defendants sought a preliminary injunction preventing Allen from making disparaging comments about them or this litigation on the internet, over the phone, at tradeshows, at conventions, etc.; contacting any of their customers; or advertising that Allen originated the changing portrait.At the hearing, Allen represented that he had removed the comments available on the internet to which Turner had objected.

The court denied injunctive relief on the ground that defamatory statements cannot be restrained before a final adjudication that they are defamatory.The proposed injunction would be a prior restraint in violation of the First Amendment, and defendants have legal remedies in the law of trade libel, defamation and intentional interference with prospective economic advantage.

This is a troubling mistake, at least from the perspective of false advertising law.Many of the other statements – by a direct competitor, to prospective customers – should have been considered under standard Lanham Act principles, though it may well be the case that many of them were statements of opinion or otherwise unverifiable and thus not subject to prohibition under the Lanham Act.Surprisingly, the court even expresses uncertainty about the commercial speech status of the statements on Allen’s website that he has “The Original Line of Spooky Changing Portraits” and that “[b]ack in April 2003, I originated the concept of using antique photographic images to create spooky changing portraits.”If the statements aren’t commercial speech, the court reasoned, the First Amendment bars an injunction, and the plaintiffs have remedies in false advertising and unfair competition law.(Comment: …?In my legal cosmology, false advertising and unfair competition law regulate commercial speech, not noncommercial speech.)If they are, then defendants didn’t meet the standards for preliminary relief, because they couldn’t identify any customers who avoided defendants because of the statements.(What about the concepts of literal falsity, direct competition, and materiality, which, if all proven, should show likely success on the merits?)Moreover, any inference of irreparable harm was rebutted by the fact that defendants waited nearly a year to move for a preliminary injunction.Even though negotiations are always to be encouraged, defendants waited over ten months to file after first expressing concerns about Allen’s behavior.

Some of the defendants’ proposed relief might have been overreaching, but the court used the First Amendment like a blunderbuss here, and false advertising law took a beating.

One of the best discussions I've seen of the relationship between corporate aggregators and individual contributors on social sites, and what we (as citizens of those sites) ought to do about it. Sample quote: "They're the monetary investors; we're the social investors. If they profit monetarily, then at minimum, we should profit socially."

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I speak for myself. On this blog, I do not and cannot speak for Georgetown Law, the Organization for Transformative Works and/or AO3.